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Economies of scale exist for a firm within an industry when larger quantities of the firm's output are produced at a lower average cost than are smaller quantities of output. For securitized real estate, such as Real Estate Investment Trusts (REITs), the outputs are the capitalization of the assets and the dividends paid out to shareholders.
Abstract. Building on past research in the economies-of-scale debate, we test for scale economies in real estate investment trusts (REITs) by examining growth prospects, revenue and expense measures, profitability ratios, systematic risk and capital costs. Overall, we find that large REITs are increasing growth prospects while succeeding at ...
- Brent W. Ambrose, Michael J. Highfield, Peter D. Linneman
- 2005
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What are economies of scale?
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Do US equity REITs have scale economies?
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The meaning of economies of scale applies to the situation in which the average cost of construction declines as building size and volume is expanded. Specialists explain this phenomenon with increased specialization, better use, and division of labor. Besides, they can benefit from more efficient or high-tech building equipment.
Opinions vary whether one can obtain economies of scale in a commercial property lease. Nay-sayers argue that applying the economies of scale formula to leasing rental unitsin commercial areas is counter-productive because it fragments your business. In a nutshell, the more property you rent out, the more problems and lease terms you will have to o...
Typically, companies can attain economies of scale, also known as cost benefits, as soon as their production becomes effective. Efficiency implies that they succeeded in boosting their production, manufacturing goods, and providing services, all maintained at reduced costs. They achieve this by spreading general costs, both variable and fixed, over...
We separate internal and external economies of scale based on various resources to achieve financial success.
Dec 14, 2019 · In this study, we examine the existence of operating efficiencies, including scale economies, in US equity REITs from 2001 to 2015. For clarification and consistency in language, we define economies of scale (scale economies) as a proportionate saving in costs gained by an increased level of production.
- Michael J. Highfield, Lily Shen, Thomas M. Springer
- 2021
It will not, however, determine the structure of the real estate service market. The structure of the real estate service market will tend, like all markets, to be driven by efficiency. Efficiency is a way to lower costs and thus capture market share. As in any business, there are economies of scale.
Jan 12, 2021 · We measure economies of scale using three different scale measures: total assets, real estate assets, and rental revenue. We evaluate economies of scale using a translog cost function. We find that REIT operating expenses increase less than proportionately with increases in total assets and that larger size results in reduced REIT operating costs.
Evidence based on capital costs for equity REITS from 1997 and 1998 indicates that the REIT industry continues to enjoy significant economies of scale, and it appears that capital costs are the primary factor determining REIT growth. Download full paper · 1MB PDF. 4th Floor, Vance Hall, 3733 Spruce Street · Philadelphia, PA 19104. 215.746. ...
